The Technology Disputes Law Review: Brazil

Overview

Technology-related disputes have been increasing both in number and significance in Brazilian courts in the past few years. The fields of law pertaining to markets involving high technology that have been more intensively litigated are intellectual property (including patents related to specialised products and activities, such as telecommunications and devices), copyrights, and unfair competition prevention, which comprises different types of claims applicable to software and trade secret protection.

With the adoption of new technologies in telecommunications structures and devices, there has been litigation related to standard essential patents and other kinds of patents, in which it is common under Brazilian law to request injunctive relief to immediately have a company cease manufacturing, offering or selling products that incorporate the protected technology.

Additionally, unfair competition litigation may involve a broad spectrum of claims, since the legal definition of unfair competition claims under Brazilian law encompasses, among many other things, fraudulent acts by a company with the goal of diverting consumers from a competitor to itself, publishing false information that may harm a competitor's image or brand, or even trade dress violations, which in general do not fall under trademark infringement in Brazil.

Typical fraudulent means include a company trying to pass itself off as, or associate itself with, a competitor to confuse consumers, thus illegally attracting clientele, or making consumers believe that a competitor's product or service is inferior or even harmful. There has been a case, for instance, in which a mobile phone antivirus application warned users that a competitor's antivirus app was actually malicious (i.e., it contained a virus), causing users to delete the competitor's product.

As will be explained in detail below, the amount of litigation related to personal data has increased exponentially in the past year following the entry into force of the Brazilian General Data Protection Law (LGPD)2 in August 2020, and the administrative penalty provisions for the LGPD entered into force in August 2021. There are therefore already individuals, associations and public entities filing suits based on the provisions of the LGPD to have companies cease collecting or processing certain personal data, to obtain indemnifications or to have companies adopt measures to comply with the LGPD, among other purposes.

Also with respect to civil associations, there was recently a substantial increase in the number of collective actions filed by entities of this kind against technology companies, especially those that manufacture and sell devices such as mobile phones or those that develop or offer applications (apps) or app stores where users can buy or obtain applications for their devices.

Some examples are lawsuits filed by civil associations questioning the 'freemium' model for the distribution of apps and games, whereby customers download an app or game for free and may then make purchases inside the app itself; the methods for making these in-app purchases (especially after news reports that unsupervised children using mobile phones or tablets were able to make such purchases) and even questioning the 'loot box' model for mobile games.

Additionally, in both the civil and the criminal spheres, there is much litigation involving data, content or information disclosure requests when the data is stored on servers (which may be physically located in Brazil or abroad) or within applications. It is common for law enforcement authorities and for plaintiffs to request subscription data from customers that contract for cloud-related services especially from large companies or even content related to websites or systems from internet application providers.

Certain law enforcement authorities have powers to request subscription information from customers (which includes name and identity details, address and parents' names only), but internet providers are only required to disclose other types of identifying information such as internet protocol numbers (also known as IP addresses) after receiving a valid court order from a judge, pursuant to the provisions of the Brazilian Civil Rights Framework for the Internet,3 Decree 8,771/2016 and Law No. 12,850/2013. If a specific company does not collect certain types of subscription data, it is not required to disclose its data.

Authorities and plaintiffs can also request the takedown of websites or other content considered to be infringing, and such requests are often directed at internet application providers (which can be a hosting company, a social media company or any other company that allows users to generate and publish content) and not at the users or customers who created and published the allegedly infringing content.

To address this issue, the Civil Rights Framework for the Internet created an explicit safe harbour provision whereby the internet application provider may only be held liable in the civil sphere for infringing content if, after receiving a valid court order to take down the material, the provider does not take the appropriate measures to comply with the takedown order to the extent possible according to the limitations of its service. The Civil Rights Framework for the Internet provides that the safe harbour provision does not apply to copyright infringement claims, which are to be regulated by a separate law (which has yet to be enacted), but there are already court decisions stating that the internet application provider must at least be notified of the alleged copyright infringement before being held liable for it, otherwise it would be impossible for its business model even to exist because it could be held liable for any type of copyright issue caused by its users.

For this reason, companies that operate social media applications, such as Facebook, or companies that provide hosting services, such as AWS, Microsoft or Google, cannot be generally held liable for user-generated content unless they do not take appropriate action to take down content after receiving a court order. However, depending on the service provided by the company, it may be impossible for it to take down specific content or to take it down without disruption that would negatively impact other content, which is a defence argument used in these types of cases.

This same defence (regarding the technical impossibility of complying with a court order) is also used by companies whose services incorporate end-to-end encryption. For instance, although it is becoming less common, there are still judges who order WhatsApp to disclose users' conversations, compliance with which is impossible, since the content of conversations is encrypted end-to-end (i.e., it is not readable or accessible by WhatsApp at all). Brazilian courts are increasingly recognising this specific aspect of certain services and applications as a benefit to users and as a valid defence for these types of requests.

Finally, audio and video streaming services have also seen a rise in the number of different types of claims being litigated. The Brazilian Central Bureau for Collection and Distribution (ECAD), the national copyright collection agency governed by the Brazilian Copyright Law4 and Decree No. 9,574/2018, is very active in negotiating agreements with companies that provide streaming services, such as Netflix, Spotify, Google (YouTube), Amazon (Prime Video and Amazon Music) and many others, and also in filing suits against companies that do not pay collective royalties for the streaming of musical works or for musical works embedded in audio-visual works, especially after a 2017 Superior Court of Justice precedent that recognised the internet as a public space and streaming as an act that entails the payment of public performance royalties.

Year in review

As mentioned above, 2020 was marked by the entry into force of the LGPD, which is largely based on the EU General Data Protection Regulation.5 The LGPD sets out numerous principles and obligations applicable to all kinds of entities that collect, process and store personal data.

There has, therefore, been litigation with respect to data protection provisions and significant new lawsuits based on the provisions of the LGPD. In one landmark case, a consumer association filed a collective action against a company that operates a subway line in São Paulo and was using facial recognition software in its stations. The first instance judge of the 37th Civil Court of São Paulo obliged the defendant to cease using any facial recognition software and to pay an indemnification of 100,000 reais in collective moral damages.

In the second half of 2020, the Federal District public prosecutor's office filed a suit against a company that operates a credit ratings database and other databases, and obtained an injunction to prevent the company from selling individuals' personal data and offering certain marketing and sales prospecting services that rely on the disclosure of personal data.

In another case, a judge from a labour court in the city of Montenegro in the state of Rio Grande do Sul agreed with a labour union's requests to oblige an employer to comply with certain provisions of the LGPD, including appointing a data protection officer and confirming the adoption of measures to ensure the confidentiality and safety of personal data.

Also in the context of personal data, there has been an increase in the filing of legal actions resulting from data breaches or data scraping incidents reported in the media, including the Cambridge Analytica incident that affected Facebook. One example is a lawsuit filed by a consumer protection association, based on data protection principles and consumer protection rules, against Facebook back in 2018 in which the first instance court decided that there was no illegal action attributable to Facebook and thus it should not be held liable for any disclosure of data. The association appealed and the case is now being tried by the São Paulo Court of Appeals.

There was also a spike in the number of cases filed against music and audio-visual streaming services by right holders and individuals claiming that their works or images were used by the services without their authorisation or in a way that infringed their rights. In 2021, the Brazilian Supreme Court decided, in a binding precedent, that the right to be forgotten is generally not compatible with Brazilian law and with the Constitution, and that the rights to obtain information and to free speech with respect to public information should prevail in a democracy.

There has also been litigation (ongoing during the past year or that started within that period) related to mobile apps and app stores in which civil associations questioned certain practices, including the offering of free apps with the possibility of in-app purchases and the offering of apps and games with the loot-box system, in which users or players have the possibility of obtaining in-app items or other benefits randomly and can pay for higher or additional chances of getting better prizes. The latter case involves several apps and games developers and companies that operate app stores. There is also collective litigation against manufacturers of mobile devices about alleged defects in their products.

Finally, a trend that is continuing to yield numerous lawsuits, both civil and criminal in nature, is for private entities to request individuals or law enforcement authorities of the disclosure of subscription data, IP numbers, content or logs from third parties. Most of such requests relate to content from apps (e.g., messaging or social media apps) or content from websites or that is otherwise stored in the cloud and are addressed to the companies of the economic group that provide or operate such apps or cloud and hosting services.

Specifically in relation to criminal cases, the Brazilian Supreme Court has yet to decide on Declaratory Action for Constitutionality No. 51, filed by the Federation of Associations of Information Technology Companies, Assespro, to determine whether Decree No. 3,810/2001 establishing the Mutual Legal Assistance Treaty in Criminal Procedures between Brazil and the United States is constitutional and whether it should be the avenue through which law enforcement authorities request information pertaining to users of foreign internet application providers. Currently, authorities usually send official requests or court orders to a local company in the economic group that operates an app, cloud or hosting service requesting the disclosure of data or content, and the Supreme Court decision may mean that this practice will have to be reconsidered if the data or content requested pertains to users of foreign companies.

Claims and remedies

Claims in technology disputes can vary depending on the plaintiff's expectations of the lawsuit.

For contractual claims, plaintiffs can file suit requesting that the defendant comply with a contractual obligation (e.g., that the defendant provide material or make a certain technology available), pay an amount provided for in a clause of the agreement between the parties, cease to perform an action, or even request that the judge declare the agreement to be null or terminated for a range of reasons.

For non-contractual claims, plaintiffs can request that a defendant perform an action, cease an action (e.g., cease any action that is deemed to be patent infringement, copyright infringement or unfair competition) or pay an indemnification for material damage, moral damage, loss of profits, etc.

Plaintiffs can request injunctive relief from a court under Brazilian law and the legal threshold for injunctions to be granted is usually not as high as in other jurisdictions, which results in more urgent or injunctive relief being granted in Brazil. To obtain an injunction, plaintiffs must show that their request is likely to be lawful and that not granting injunctive relief could create additional damage or endanger the effectiveness of the lawsuit, and judges may grant an injunction before or after hearing the defendant.

Punitive damages are unlawful under Brazilian legislation, although courts often consider the educational aspect of the decision in quantifying the monetary amount of moral damages to be awarded. In general, material damage must be defined according to objective criteria and the criteria are decided on a case-by-case basis, with some parameters defined by law. For instance, the Brazilian Industrial Property Law,6 provides that loss of profits for industrial property or unfair competition claims may be measured according to three different methods: the benefits that the harmed party would have earned if the infringement had not taken place; the benefits that the infringer earned; or the royalties or remuneration that the infringing party would have paid to the harmed party if they had negotiated a licence agreement.

Courts and procedures

There are no courts that specialise in technology disputes in Brazil, but there are courts that focus on industrial property matters. The Court of Justice of the State of São Paulo, for instance, contains a set of first instance courts that specialise in 'bankruptcy, judicial recovery, business and arbitration-related disputes', which in turn include complaints grounded in industrial property and unfair competition laws. However, most courts do not specialise, but rather deal with a range of civil and business law matters.

There is no jury system in Brazil for civil lawsuits of any kind, and these are decided solely by judges.

Prior to filing the main lawsuit (or in parallel, or even within the main lawsuit), plaintiffs have the option to file a prior action to obtain information, content or other types of evidence. Plaintiffs can also file a preliminary injunction relief request if the matter is urgent or if the effectiveness of the lawsuit could be impaired without the preliminary action. It is possible to amend the preliminary action subsequently to include additional arguments and claims, such as indemnification claims that were not part of the preliminary injunctive relief.

Statutes of limitations vary depending on the kind of claim; for instance, the Industrial Property Law provides for a five-year statute of limitations for industrial property infringement claims, whereas the Brazilian Civil Code sets out both a general 10-year statute of limitations (which applies when there is no specific time frame defined by law) and several hypothetical situations that trigger statutes of limitations ranging from one to five years. For civil indemnifications in general the limit is three years and to claim amounts already defined in an agreement it is set at five years.

The duration of a lawsuit from start to finish largely varies according to the court where it was originally filed (courts in some Brazilian states take much longer to decide than others) and on the number of appeals filed by the parties, but technology disputes tend to take longer than other disputes since they usually require the production of evidence, especially court expert reports, and judges have to examine the arguments and facts with extra care. By way of a rough estimate, if a lawsuit is filed in the central courts of São Paulo, which tend to be faster than others, it may take up to two or three years for a first instance decision to be issued and one and a half to two years for a court of appeal decision. Then the parties may file appeals to the Superior Court of Justice or to the Supreme Court and if those appeals are accepted, they may take additional years to be processed and decided.

Evidence and witnesses

There is no extensive disclosure proceeding under Brazilian law as there is in other jurisdictions, but a judge can request that the parties provide documents to be attached to the case files and can assign the burden of proof to each party depending on which one is technically able to provide a piece of evidence. All types of evidence necessary for the analysis of the dispute, including production of documents, witnesses' or parties' testimony and expert examinations, can be requested by the parties or by the judge.

Before filing a substantive complaint, the plaintiff can file a proceeding known as a 'preliminary production of evidence', which is applicable in three situations: when the production of the evidence may be impaired or made impossible if the lawsuit is filed; when the evidence to be produced may result in a settlement between the parties; and when knowledge of the facts may result in the lawsuit not being filed.

Evidence can also be produced in a preliminary proceeding if there is a risk that it may be destroyed by the defendant on becoming aware of any legal action. There have been multiple cases, for instance, in which the plaintiff filed suit against a content hosting provider to obtain access to content belonging to a third party (the hosting provider's customer) that is allegedly infringing the plaintiff's rights. In cases of this kind, if the judge understands that the content may be infringing and that the third party should not be aware of the production of evidence or the lawsuit until the content is produced and provided to the court, the lawsuit may be kept under seal so that the third party cannot delete or tamper with the content.

Asking the judge to order the other party to provide documentation can also be done during the course of the main lawsuit, and the judge may grant or reject the request depending on whether it is deemed reasonable and legal.

With respect to the substantive complaint, the plaintiff, at the moment of filing, must submit to the court all pieces of evidence it has, including all technical documentation that supports its arguments. Article 435 of the Brazilian Civil Procedure Code (CPC) provides that the parties can submit new documents in certain cases:

  1. when the documents serve as evidence of facts that occurred after the filing of the complaint;
  2. when the documents are being submitted to rebut an allegation by the other party;
  3. when the documents were created after the complaint or the answer to the complaint was filed;
  4. when the party becomes aware of the documents only after the lawsuit is already being processed, in which case the party must prove why the documents were not submitted earlier.

In any case, it is common for parties, in the complaint or in the answer to the complaint, to state that they reserve the right to produce additional evidence later.

After the defendant files its answer to the complaint and supporting documents, the judge notifies the plaintiff to file a reply. Depending on the reply, the judge may give the defendant one final opportunity to file a brief countering the plaintiff's claims.

Subsequently, the judge notifies both parties to indicate any additional evidence they wish to produce and the parties may require the hearing of witnesses, an expert opinion or other kinds of evidence. If a party indicates that witnesses are to be heard, it must state which facts each witness's testimony is intended to prove. If a party requests an expert opinion and the judge agrees with the justification for the request, each party will be given the opportunity to appoint its own technical assistant and to draft a list of questions.

It is common for technology disputes to have extremely sensitive discussions regarding technical aspects of the subject matter being litigated, which is why many cases require the production of expert opinions. This is also because, in general, judges do not have a technology-related background, so they must seek an opinion from a trusted expert in the field.

The judge will then issue a decision setting out which facts are not subject to debate and which are disputed between the parties and will be examined, and the parties may question this decision. The judge will also appoint an expert trusted by the court, which the parties can also challenge for personal or professional reasons (e.g., if the expert has already worked for one of the parties or is not an expert in the technology being litigated). The expert will then provide a fee quote that the parties can accept or dispute, although ultimately the judge will decide whether it is acceptable.

The expert, during his or her work, can talk to the parties' experts and examine the case files and any other material needed (e.g., a device, technical information). At the end of the examination, the expert will issue an expert report analysing the case and answering any questions drafted by the parties or from the judge.

The parties can then dispute the court expert's report with the aid of their technical assistants, who can provide their opinions on the findings of the report. The judge can ask the court expert to answer the parties' questions, issue additional reports and even attend a hearing at which the judge and the parties can ask the expert questions with the goal of clarifying the expert's findings.

With respect to witnesses, the judge can accept or reject that each one be heard. During the testimony hearing, which is always held before the judge, both parties and the judge can ask questions to a witness and all answers are included in the transcription of the hearing. Additionally, many courts now record the hearings and ensure the videos are available to the parties if needed.

Enforcement

At the end of a lawsuit in which the plaintiff's claims are granted, a judge or a court may order the defendant to pay an indemnification for material damage, moral damage or for other types of losses, such as loss of profits. The indemnification awards become payable after a decision becomes res judicata (i.e., unappealable) or if the available appeal process does not have staying effects.

The losing party may pay the indemnification amount willingly, otherwise the winning party may start an enforcement proceeding. Enforcement proceedings are usually commenced once the indemnification amount has been defined in the final decision and the defendant has been given a deadline to pay or to question the amount. The available grounds for questioning a decision are defined in the CPC and include, but are not limited to: the award being in excess of the amount claimed in the enforcement procedure; the nullity of the summons in the main lawsuit on account of the defendant being in default; and supervening facts having caused the indemnification obligation to cease.

In the event that the indemnification amount has yet to be calculated, the winning party can start an enforcement proceeding for that purpose. In cases of industrial property infringement or acts of unfair competition, the indemnification may be calculated pursuant to the Industrial Property Law to take account of the benefits that the affected party would have earned if the infringement had not taken place, and the loss of profits may be calculated according to the most favourable of the following criteria: the benefits that the harmed party would have earned if the infringement had not taken place; the benefits that the infringer earned; or the royalties or remuneration that the infringing party would have paid to the harmed party if they had negotiated a licence agreement.

Calculating damages in technology disputes can be challenging and may involve making substantial assumptions to reach a final amount, such as examining market practices, or royalties or remuneration from other agreements and weighing up other factors. In many cases the parties end up reaching a confidential out-of-court settlement before an indemnification is calculated.

When the final award involves an obligation to do or not do something (e.g., cease an infringing action), or to hand over or deliver up something (e.g., data, content, products), the judge or court can and often does set out daily penalty fines to be paid by the losing party if it does not comply with the order. The fine may or may not bet capped at a set amount and is usually calculated according to the size of the company subject to the order (to make it proportionate and effectively turning it into a method to force the company to comply with the order), the nature and size of the infringement, and the impact suffered by the affected party. According to the CPC, the judge can also impose other types of penalties or measures to force the losing party to comply, and where a party does not comply with an order to hand over or deliver up something, the judge can issue a seizure order.

Alternative dispute resolution

There are several arbitration chambers that offer dispute resolutions mechanisms, including for technology disputes. For claims arising out of agreements, it is common for the parties to elect arbitration as the mandatory dispute resolution method and to indicate in the agreement itself which chamber they wish to use.

Well-respected chambers that are seated in Brazil include, among others, the International Chamber of Commerce and the Brazil–Canada Chamber of Commerce (CCBC), but parties may opt for other institutions, even ones seated in other countries.

Choosing arbitration may be a preferable option for technology disputes because the parties can indicate technical arbitrators for the arbitration panel with specialised knowledge of the technology in question that a judge would not have.

Also, arbitration proceedings usually take less time to reach final resolution, which is a significant advantage considering that the Brazilian civil procedure system admits a wide range of appeals during the course of a lawsuit brought to a court. Arbitration proceedings may also accept documents in foreign languages, whereas in Brazilian courts all documents must be in Portuguese originally or submitted with a sworn translation, which may cause delays or difficulties, particularly if the technology or market area subject to litigation occupies a specialist niche.

Another plus for technology-driven disputes is that arbitration is usually confidential, while lawsuit case files are generally held in public records unless they involve sensitive information or trade secrets that require confidentiality to be observed.

This is why many (if not most) companies choose arbitration as the dispute resolution method when drafting agreements involving high tech.

Meditation is also an option and some agreements provide for a mediation phase prior to arbitration. Many institutions that serve as arbitration tribunals also provide mediation services to address matters of this kind.

Finally, there is an arbitration proceeding created by NIC.br (the entity that assigns .br domain names) called the Administrative System for Internet Disputes (SACI-Adm) specifically for disputes regarding .br domain names that may infringe registered trademarks. SACI-Adm is similar to the Uniform Domain-Name Dispute-Resolution Policy created by the Internet Corporation for Assigned Names and Numbers, and the SACI-Adm arbitration may be carried out by one of three different entities (to be selected by the complainant): the Brazilian Intellectual Property Association, the CCBC or the World Intellectual Property Organization.

Outlook and conclusions

As mentioned above, the Brazilian General Data Protection Law recently entered into force and, now that its administrative penalty provisions have become effective, there is likely to be a surge in disputes involving data protection.

Additionally, new technologies come with new discussions between companies in the contractual and non-contractual spheres, which is likely to increase the amount of litigation in Brazilian courts. Technologies such as 5G, which will soon be adopted as the market standard, may result in lawsuits being filed for a myriad of reasons.

Although the numbers were already high before 2020, there has also been a significant increase in litigation involving apps and websites, with big tech companies becoming increasingly active in the courts. This results in companies having to actively explain how their internet-related services and products work, especially with respect to the limitations as to what companies can do to comply with orders. A frequent example is companies having to explain how the encryption protection adopted by their systems or products prevents them from performing certain actions, such as disclosing data from communications between customers or taking down certain types of content.

Fortunately, the courts, including the higher Brazilian courts, are becoming more educated about these matters and are increasingly more able to understand the technical nuances of internet services and applications, thereby improving the quality of the decisions and court orders issued.

Footnotes

1 André Zonaro Giacchetta, José Mauro Decoussau Machado and Ciro Torres Freitas are partners and Gustavo Gonçalves Ferrer is an associate at Pinheiro Neto Advogados.

2 Law No. 13,709/2018.

3 Law No. 12,965/2014.

4 Law No. 9,610/1998.

5 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation).

6 Law No. 9,279/1996.

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